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HMRC internal manual

Employment Income Manual

Deductions from earnings: capital allowances: example: first year allowance

The 40% or 50% FYAs were withdrawn in respect of expenditure incurred on or after 6 April 2008 (for IT purposes) and were replaced by the Annual Investment Allowance (AIA) (see EIM36605).

This example shows how first year allowance is calculated in a straightforward case.

On 6 June 2007, an employee starts a new job in Exeter and has to spend £600 on a word processor in order to perform its duties. The word processor is used solely for work. As the expenditure was incurred in a qualifying period (see EIM36630) the employee claims capital allowances as follows:

2007/08 Cost 600
  First year allowance 50% of £600 = 300
  Residual value carried forward 300
2008/09 Writing down allowance 20% of £300 = 60
  Residual value carried forward 240

Note that the full 50% first year allowance is due even though the employee started the job part way through the tax year (see EIM36610).

But if the employee had used the word processor partly for non-business purposes a private use adjustment would have been necessary (see EIM36570).

Please also see the guidance at EIM36695 relating to small pools allowance.